India · FY 2026-27 · Salaried Employees

India Income Tax FY 2026-27: A Complete Guide for Salaried Employees

By Muhammed Abdul Kalam · Published 7 June 2026

Reviewed by CA Archa Ak, Chartered Accountant (ICAI) · Last reviewed: 12 May 2026

What is FY 2026-27 — and when do you file?

India's financial year runs from 1 April to 31 March — not the calendar year. FY 2026-27 covers income earned from 1 April 2026 to 31 March 2027.

The related Assessment Year is AY 2027-28. This is the year in which you file a return on the FY 2026-27 income and the income tax department assesses it. The filing deadline for AY 2027-28 is 31 July 2027 for most salaried employees.

One important point before we go further: the AY that appears on Form 16 and your ITR for income earned in FY 2026-27 is AY 2027-28 — not 2026-27. This trips up many first-time filers. If your employer is giving you Form 16 for the salary you earned from April 2026 to March 2027, it will say "Assessment Year: 2027-28" on it. That is correct.

New Regime is the default for FY 2026-27 — but you can opt out

Since FY 2023-24, the New Tax Regime (Section 115BAC) has been the default for all taxpayers. This means if you do nothing — if you don't declare a regime to your employer and don't make a choice when filing — the New Regime applies automatically.

For most salaried employees, this default is likely the right choice. The New Regime offers lower slab rates, a higher Section 87A rebate (₹60,000 vs ₹12,500), and a larger rebate income threshold (₹12 lakh vs ₹5 lakh). However, if you have substantial deductions — a significant HRA exemption, a large home loan interest deduction, or heavy 80C investments — the Old Regime may still save you more.

The practical approach: compute both, compare. The India Tax Calculator computes the New Regime. For a side-by-side comparison of both regimes at your income and deduction level, read our Old vs New Regime decision guide.

New Regime income tax slabs for FY 2026-27

The slabs below apply to taxable income — that is, your gross salary after deducting the ₹75,000 standard deduction (and any other allowed deductions, which are very limited under the New Regime). These slabs are unchanged from FY 2025-26; the Union Budget 2026 (presented 1 February 2026) made no changes to income tax rates.

Source: incometaxindia.gov.in — New Regime slabs effective from FY 2023-24, confirmed unchanged for FY 2026-27. Plus 4% Health & Education Cess on the total slab tax (applied after any Section 87A rebate). Surcharge applies on incomes above ₹50 lakh — see Section 9.

Standard Deduction of ₹75,000 — available in both regimes

The standard deduction is a flat ₹75,000 subtracted from your gross salary before computing taxable income. It applies automatically — you don't need to claim it or submit any proof. It is available to all salaried employees and pensioners under both the New and Old Regimes for FY 2026-27.

This is a common source of confusion: many taxpayers assume the standard deduction is only available in the Old Regime (where it was introduced) and is absent in the New Regime. That was true until FY 2023-24, but it has been available under both regimes since FY 2024-25 and continues for FY 2026-27.

Practical impact: A salaried employee with gross salary ₹12,75,000 has taxable income of exactly ₹12,00,000 (after the ₹75,000 standard deduction). That taxable income of ₹12,00,000 is covered entirely by the Section 87A rebate — meaning zero tax payable. The ₹75,000 standard deduction is what allows the effective zero-tax ceiling to be ₹12,75,000 (gross) rather than ₹12,00,000.

Non-salaried individuals — freelancers, business owners, professionals — are not entitled to the standard deduction under either regime.

Section 87A rebate — and the marginal relief that prevents the cliff

Section 87A is the provision that makes income up to ₹12,75,000 (gross, for salaried employees) completely tax-free under the New Regime. Here is how it works precisely:

• New Regime: If your taxable income (after standard deduction) is ₹12,00,000 or less, your income tax liability is reduced to zero. The maximum rebate is ₹60,000 — which equals the slab tax on exactly ₹12,00,000 of taxable income (5% on ₹4L–₹8L = ₹20,000; 10% on ₹8L–₹12L = ₹40,000; total = ₹60,000).
• Old Regime: The rebate is ₹12,500 and applies only if taxable income is ₹5,00,000 or less.

The marginal relief mechanism — the most misunderstood part

Without marginal relief, a person earning ₹12,75,001 gross (taxable ₹12,00,001) would suddenly owe over ₹60,000 in tax — because they'd be one rupee over the rebate threshold and the full slab tax would apply. That would be a perverse cliff: earning one rupee more would cost you ₹60,000+.

Marginal relief eliminates this cliff. The rule is: when taxable income exceeds ₹12,00,000, the extra tax payable cannot exceed the amount by which taxable income exceeds ₹12,00,000 (plus 4% cess on that amount). In other words: tax ≤ (taxable income − ₹12,00,000) × 1.04.

This creates a zone — between taxable ₹12,00,001 and approximately ₹12,70,588 — where you effectively pay a 104% marginal rate: for every additional ₹1 of income, you lose ₹1.04 in take-home. That sounds alarming but is far better than the alternative (suddenly owing ₹60,000+ at the first rupee over threshold). The marginal relief zone runs until approximately gross salary ₹13,45,588, where normal new regime slab rates resume.

All figures computed by the Tax Atlas engine (calculateIncomeTax against inNewRegime202627 config). The ₹13,45,588 breakeven is derived: marginal relief ends when slab tax equals the excess — solving 0.15Y = 0.85Y gives Y = ₹70,588 above the ₹12L threshold.

Worked examples at six income levels

All figures below are computed by the Tax Atlas engine. They assume: salaried employee, standard deduction ₹75,000, no other deductions, under 65 years of age. Surcharge is not modeled for incomes above ₹50 lakh — see the note below the table.

The engine does not model surcharge. At ₹50 lakh gross, a 10% surcharge on slab tax adds approximately ₹1,10,000 and cess on the gross. At ₹1 crore, a 15% surcharge adds approximately ₹6,20,000. Always verify high-income figures with a CA.

What is Form 16?

Form 16 is the TDS certificate your employer must issue to you by 15 June of the assessment year (so, by 15 June 2027 for FY 2026-27 income). It is the primary document you need when filing your ITR. It has two parts:

Part A — issued by your employer, downloaded from the TRACES portal with a unique certificate number. It shows: your employer's TAN and PAN, your PAN, the total TDS deducted quarter by quarter, and the total TDS deposited with the government. If the TDS on your Form 16 Part A doesn't match the TDS in your Form 26AS (tax credit statement), there is an issue — typically a PAN mismatch or a delay in your employer depositing TDS.

Part B — issued by your employer, showing a breakdown of your salary: gross salary, allowances, perquisites, the deductions or exemptions claimed on your behalf (based on the declarations you submitted to your employer at the start of the year), and the net taxable salary. Part B is not generated on TRACES — your employer creates it.

When filing your return, use Part A for TDS credit and Part B as the basis for your income declaration. Most tax portals and CA software can import Form 16 directly — upload the PDF and the system extracts the figures automatically.

How TDS on salary works

Your employer deducts Tax Deducted at Source (TDS) from your salary every month and deposits it with the government on your behalf. The amount deducted is based on an estimate of your full-year tax liability.

At the beginning of the financial year (April 2026), your employer will ask you to declare your preferred tax regime and, if you choose Old Regime, to submit investment declarations (e.g., proposed 80C investments, HRA details, home loan interest). Your employer uses these declarations to compute the projected annual tax and deduct TDS proportionally each month.

Important: The regime you declare to your employer for TDS purposes does not lock you into that regime at filing time. Salaried employees can change their regime when filing the ITR. If TDS was deducted under New Regime but Old Regime saves you more (or vice versa), you file under the regime that benefits you — any difference is either a refund or additional tax due.

Best practice: at the start of FY 2026-27 (April 2026), declare the regime that minimises your monthly TDS. Recompute in January 2027 (after most investments are made) and ask your employer to adjust December/January/February/March TDS if the estimate was off.

Common salary components — what is taxable?

For salaried employees, the following components combine to form your gross salary. Under the New Regime, all of these are taxable (except where noted) — the New Regime removed most component-level exemptions.

• Basic salary: Fully taxable in both regimes.
• Dearness Allowance (DA): Fully taxable in both regimes.
• House Rent Allowance (HRA): Fully taxable in New Regime. Partially exempt in Old Regime (under Section 10(13A)) — the exempt amount depends on rent paid, basic salary, and whether you live in a metro. The HRA difference is often the primary reason Old Regime beats New for urban renters.
• Leave Travel Allowance (LTA): Taxable in New Regime. In Old Regime, exempt twice in a 4-year block for actual travel expenses within India (for self and family).
• Bonuses and incentives: Fully taxable in both regimes.
• Perquisites (rent-free accommodation, company car, etc.): Taxable in both regimes based on prescribed valuation rules. Employer computes the taxable value and includes it in Form 16.
• ESOPs (Employee Stock Option Plans): Taxed in two stages — as perquisite income when exercised (at market value minus exercise price, as salary income), and as capital gains when the shares are sold. Both events are taxable regardless of regime.
• Employer's PF contribution: Exempt up to 12% of basic salary; excess is taxable as perquisite in both regimes.

How to file your ITR for FY 2026-27 (AY 2027-28)

1. Get Form 16 from your employer (by 15 June 2027). If your employer hasn't issued it by then, follow up — late issuance is a compliance failure on the employer's part.
2. Download Form 26AS and AIS from incometax.gov.in. Form 26AS shows all TDS deducted against your PAN. The Annual Information Statement (AIS) shows a broader view of financial transactions. Verify that TDS in Form 26AS matches Form 16 Part A.
3. Choose your regime. Use the India Tax Calculator for New Regime. For Old Regime, consider a CA or a dedicated ITR filing tool that computes both. For most employees without large deductions, New Regime is the right choice.
4. Compute your total income and tax. Include salary, any freelance income, interest income from savings, FD interest, rental income, and capital gains from mutual funds or shares. Each of these has its own tax treatment.
5. Determine the right ITR form. Most salaried employees with only salary + savings interest file ITR-1 (Sahaj). If you have capital gains, more than one house property, foreign assets, or business income, you file ITR-2 or ITR-3.
6. File on incometax.gov.in by 31 July 2027. You can also use ITR filing platforms that integrate with the portal. Filing late (after 31 July) incurs a ₹1,000 penalty (₹5,000 if taxable income exceeds ₹5 lakh). Interest also applies on unpaid tax.
7. E-verify within 30 days of filing. Without e-verification, the return is invalid — it's not "filed" in the eyes of the department. Verify via Aadhaar OTP, net banking, or send a physical signed ITR-V to CPC Bengaluru if you can't e-verify.

Seven common mistakes to avoid

• Forgetting the standard deduction. Some taxpayers compute tax on gross salary directly without subtracting ₹75,000 first. This overstates your tax — sometimes by a full bracket.
• Computing only one regime. If your deductions are above ₹3–4 lakh (HRA + 80C + home loan), the Old Regime may save you money. The calculation takes 10 minutes and is worth it.
• Missing HRA exemption in Old Regime. If you pay rent in Old Regime and your employer is structuring your salary with an HRA component, the exemption can be claimed — but you need to submit rent receipts and your landlord's PAN (if annual rent > ₹1 lakh).
• Not e-verifying after filing. A filed-but-not-e-verified return is treated as not filed. You have 30 days from the date of filing to e-verify.
• Filing under the wrong ITR form. Filing ITR-1 when you have capital gains or multiple house properties is invalid. The department will generate a defective return notice.
• Not reconciling Form 26AS with Form 16. If your employer deposited TDS under a different quarter or with an incorrect PAN, the TDS won't appear in your Form 26AS. The refund will be delayed or denied until the mismatch is resolved.
• Not accounting for surcharge at incomes above ₹50 lakh. Many high earners compute slab tax but forget the 10% surcharge on top. The Tax Atlas calculator currently excludes surcharge — consult a CA for incomes above ₹50 lakh.

Frequently asked questions

Calculate your tax — and understand the numbers behind it

The new regime's structure — low slabs, a large Section 87A rebate, and a ₹75,000 standard deduction — means most salaried employees in India pay zero income tax up to ₹12,75,000 and single-digit effective rates up to ₹20 lakh. If you haven't verified where you stand, take two minutes and do it now.

For a complete comparison of Old vs New Regime — including breakeven analysis at different deduction levels — read the companion article: Old vs New Tax Regime FY 2026-27: Which Should You Choose?